São Martinho S.A. ($SMTO3)

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to the São Martinho S.A. conference call to discuss the results for the fourth quarter of the '25-'26 crop year. With us today are Mr. Felipe Vicchiato, CFO and Head of IR; John Graham, IR Manager and the Investor Relations team of São Martinho. The audio and slides of this conference call are being broadcast simultaneously over the web at www.saomartinho.com.br/ir. Participants will be able to choose which language they want to view their presentation in. [Operator Instructions] Please be advised that certain information contained in this conference call may contain forward-looking statements, and such information is subject to known and unknown risks and uncertainties that may cause such expectations not to be realized or to differ materially from what was anticipated. Now I would like to turn the floor to Mr. Felipe Vicchiato, who will initiate the presentation.

Good afternoon, everyone, and thank you for joining us for São Martinho's Earnings Release presentation related to the fourth quarter of '25-'26 crop year and the end of the fiscal year. Going straight to Page 3. Here, we bring the main highlights that we would like to mention during this conference call, starting with the financial highlights, margins the closing of the corn processing operation, sugar market, hatch prices of sugar and ethanol and the two material facts that we released yesterday in terms of the production guidance and CapEx. And finally, how the company ended the year and what we expect to see going forward. Financial highlights. We had a very strong year in terms of sales volume. We grew sugar volumes 32% and sales volume -- ethanol sales volume was at 37% with best ethanol prices vis-a-vis the fourth quarter of last year and lower sugar prices vis-a-vis the previous month. And that led to increase EBITDA. We grew 41% vis-a-vis the last half year. Margin -- EBITDA margin is close to 49%. EBIT at 22%. In the quarter, we had two important effects. One was the biological asset, BRL 129 million accounting effect without the cash effect. So we exclude that effect from the cash income. And as such, cash income in the fourth quarter of '25-'26 is BRL 338 million, meaning a significant growth vis-a-vis the previous quarter. Another important highlight in addition to sugarcane ethanol, it was corn ethanol. Corn ethanol posted higher margins given that it is anhydrous ethanol. We will elaborate more on that subject once we show you the slide on corn ethanol. Now product margin, looking at the end of the crop year and looking at sugarcane alone. Sugar. At year-end, we come to a margin of 18% cash cost. That includes 100% of our maintenance CapEx. On a year-on-year comparison, there was a drop of 7% on the cost, mainly due to Consecana prices, given the fact that prices were down, there was an impact coming from Consecana, that brought costs down though we have a better performance, we were able to reduce that cash cost. And that helped us to maintain the sugar margin. Our expectation is that, that cash cost should go down approximately 7% in the next crop year. And we will talk more about it once we look at our CapEx guidance, which will show in the final slides. In the case of ethanol, Margins were better when compared to last year's margins, given the fact that last year, the margins were very bad. But this year, the margin was 6.8%. It was better, but yet even then it was low when it comes to sugarcane ethanol. And that improved margin stems from better ethanol prices given the fact that there was a strategy of carryover ethanol. And most part of it was sold during the off-season. I think there was a carryover of about 40% that was sold at the end of the crop season, which allowed us to get better prices. And with that, the margin grew to 6.8%. Here, we show the corn ethanol plant. It was a very good year for that corn ethanol plant. We reached production of 521,000 tons in line with our guidance. The cost of corn was 53 barrels per bag. The cost was 7% lower when compared to the cost of last year. With that, efficiency was better. We were -- we posted an improvement of 2% vis-a-vis last year. So the cost of corn was lower, higher efficiency, better ethanol prices and also better DDG prices throughout the entire crop year. And the result of that led to increasing corn results. It was up by 76% in the case of EBITDA, BRL 400 million in EBIT reached BRL 374 million with a margin EBITDA of 36%. EBITDA margin of 36%. As a reminder, in this very specific case of corn P&L, we do not compute the cogeneration costs that we purchase from the "sugarcane ethanol plant" because if you were to buy that cogeneration in the market, or if we had originated through chips, we would have about a range of BRL 60 million to BRL 70 million in addition to our costs. So given the productivity of the plant, if it were a stand-alone plant, our costs would have been higher and our margin lower. Now just like the strategy we use in the cane ethanol, we apply the same thing for corn ethanol, even though corn ethanol is predominantly anhydrous volumes were much higher. We grew by 50% quarter-on-quarter of net revenue, volume sold. I mean 70% was ethanol. And with that, we posted important growth, both in EBITDA and EBIT for corn-based ethanol. In March, we had a corn purchase volume of 209,000 tons at an average price close to BRL 54 per bag. This price is very similar to what we posted last year. Purchases continue. We continue to buy to total the 500 tons of corn that will crush this crop year prices are increasing. And we are beginning to realize that there might be a slight drop in corn in the region, but this is not significant enough to lead to any loss because we already produce a significant volume, but prices are worse in Goiás and Mato Grosso. So those who do not have their hedge in place, they may be feeling a certain pressure on their margins. But in our case, we already have a significant amount that is already hedged and protected. Therefore, cost will not be an issue in the next crop year. Now speaking about the sugar market. In the '26-'27 crop year, we ended with BRL 594,000 this price, I mean, BRL 250 less of our own cane when we look at our own cane that was hedged last year, With this result, I mean, due to the strong drop in sugar prices, I mean, this has been the case in the last 12 months. You probably realize that in our production guidance, we are not specifying the guidance by product. This is something that the company will release throughout the entire crop year. I mean, looking at the best result for the company. But the fact is that if you look at the March screen, we can hedge sugar at the best price in the range of BRL 1,900 or BRL 1,950, which is the best price. Therefore, we are trying to carry sugar to longer screens in the remaining stock that we have still to hedge. The expectation or the market consensus is that Brazil will produce 41 million tons of sugar. that means 1% to 2% growth vis-a-vis last year. I mean, in terms of crushing cane, it's more than what we had. India and Thailand, their production is dropping. Prices should be in a different level. What could happen is that part of the ethanol, and we will see in the coming slides when we show ethanol production from sugarcane increasing, there is -- that reflects a changing mix. So maybe the market is pricing that part of that mix might migrate to sugar. Therefore, I would have more sugar than that 41. And this may explain part of the reason why prices are so much under pressure, but things are not dialoguing with one another. This price doesn't match the supply and demand of sugar for the '26, '27 crop year. We hedged all we could in following a hedge strategy to protect our margin. With that drop in cost that I mentioned before of around 7%, my sugar cost is around -- I mean, 1,750 per ton. I am hedged at 2,100, still considering a cash cost that contemplates all the impacts coming from increase in fertilizers and year-on-year comparison and other factors. So I still have some margin, but I would say that São Martinho is one of the very few companies that has a margin because costs are quite high and our margins are mostly based on increase in yield and efficiency rather than anything else. So moving on to the ethanol market now. Here, the price scenario starting in April is very disconnected to the oil reality. When we look April and May, and year-to-date, with oil prices that are up 40% in BRL terms in ethanol prices being down about 17%. This is very complex to understand. It's difficult to understand. But this chart explains a bit this drop from April to May, which was a significant drop. And this was mostly due to the initial expectation of a very strong ethanol production coming from the center South. So maybe we should increase that production in the center south part of it will come from sugarcane, increasing from BRL 26.8 million. And another relevant part coming from corn reaching BRL 1.8 billion. Corn-based ethanol. In that regard, most ethanol plants, corn ethanol plants do not have a large tanking capacity to deliver the harvest. They do have some stock, but they don't have enough for ethanol. So whatever they produce, they sell, and this puts pressure on the early stages of the crop year, prices of ethanol at the pump in these past weeks already reflect the drop we saw in the mill. We see some parities and some locations close to 60%. And so this should stimulate demand. This should stimulate demand. So in some regions of Brazil, there should be an increase of up to 30% of the fleet consuming ethanol. So this is what we expect to see. There are many subsidies for gasoline. So we do not anticipate increase in prices in the pumps until October. So this is not just our expectation, but the fact that since ethanol prices are cheap in if consumers notice that prices are cheap, they will push consumption upwards. And so prices, I mean consumption will increase. And the crop year will be very similar of that of last year when we will see improved prices mostly at the end of the crop year in October and November. São Martinho has a very large inventory capacity for ethanol and our working capital cost is quite interesting as well. Our working capital cost is very close to CDI. Therefore, we have a combination of stocks plus CDI costs. And this gives us enough breadth to carryover stocks at a very reasonable level. So the decision to sell or not is ours as well. I would like to emphasize that in the first quarter, in April, in the first half of April, we sold a lot of ethanol, our own ethanol, and we sold what we had in stock even before that drop in prices. And then we stopped a little bit. And so we are only selling what we have purchased because prices are at a certain level that it wouldn't make any sense. So moving now to the two final slides on the guidance. So we just released our production guidance. Our estimate for this year is that we will grow 10.7% sugarcane volumes, the TRS produced volume crushing would go to 23.6%, and we will grow TRS by 2.5% and this is a combination of higher productivity, TCH, higher TRS and also a larger harvest area or acreage due to the acquired sugar field from Santa Elisa, the treated area should also increase due to that acquisition and that project. The project for this year only takes half of the potential. Since there was an area that was resting, there was no planted area, and there was another area that had to be treated because the sugarcane field was -- had not reached its full potential. But if we look at a potential of about 900,000 tons, give or take, we are harvesting about 400,000 tons this year, but the total potential out of the 900,000 will be realized next year. So for next year, we expect to see a significant growth coming from Santa Elisa about corn processing. Now this lower processed volume is mainly due to the fact that now I need more time for the corn off-season because of the second phase of the project that will start next year. In order to interconnect our ethanol sugar plant and connect that to the corn plant, I would have to stop both plants for more weeks for a larger period of time. So I would have to stop the corn plant a little bit before the sugar processing plant. So I won't be able to crush the same corn that I crushed last year. So that's the downsize of the project. It's not a lot, just 5%, but this will impact ethanol a bit more because there will be a 5% drop in ethanol and DDG will fall by 3%. We are trying to recover our ethanol production by increasing efficiency gains. So we may be able to recover part of it. I cannot make any promises, but the best estimate we have today would be to produce a bit more -- a bit less, but for the sole reason -- sole reason being the connection between the plants, we have to prepare the corn plant to initiate the second phase of the corn plant, and that should reach about 1 million tons of process corn a year. And then finally, before we go to the Q&A, we have our CapEx guidance. Maintenance CapEx that involves crop treatment planting off-season maintenance. The guidance is for BRL 2 billion, is 1.3% increase. This guidance contemplates a larger acreage, a larger crop treatment area. We have labor inflation as well. They should be factored in because within the agriculture, process. We have labor and inflation. You also have to consider fertilizer inflation. 60% is hedged at a lower price, but we are also being impacted by the remaining 40%. So that 1.3% increase, and I just read a few sell-side reports saying that our CapEx guidance was higher than expected. I mean there is more acreage, there is inflation and more crushing for next year. So next crop year, we should crush an additional 1,000 tons and the CapEx of today is to crush next year. we already have a lot of operating efficiency gains that were factored in this calculation. But unfortunately, we have to consider inflation, and we try to absorb as much as possible. That's why this is in the range of BRL 2 billion. I mean operating improvement, this is the combination of many projects. I mean we have more efficient 2-row harvesters, tractors that spend less diesel. They had to be changed because the old ones were losing efficiency and their maintenance was impacting the cost. So we just use them to the limit. And then finally, BRL 800 million that would refer to our corn ethanol. We do not have any additional CapEx for any other project. This CapEx basically concludes the corn ethanol project. Very little will be left for next year. I mean the disbursement that we mentioned in our material fact that is different from the schedule. The thing is that the financial disbursement schedule is different than the activated disbursement because sometimes I activate the property, but I still have accounts payable to my suppliers that I pay later when the project is operational. So there is a mismatch between what is activated and what is indeed disbursed. But now with this asset of BRL 800 million, this concludes almost the entire product. There is very little to be done in the following year. So I think these are the main topics of the year-end quarter. So now we can open for questions. Thank you.

[Operator Instructions] Our first question comes from Leonardo Alencar with XP.

Well, thank you for giving me a lot of details. That was very helpful. I would like to start with sugar. You talked about sugar hedge. I think the estimate is up about 40%. And if you could give us an idea about the different mix, but what would be the strategy going forward for sugar hedge? When we talk about it last time, you mentioned that maybe you would see a lower hedge for sugar. But there was a loss because of ethanol. So I just want you to say whether that drop was within the expected range or not. So can you give me an estimate or what you see in terms of sugar. I mean, the whole sector was less hedged for that crop year for this crop year. And more recently, there were changes in the sugar market, but maybe there's an opportunity for us for you to increase your sugar hedge even more. And my second question, I mean, if everything remains constant, I think you are in a very comfortable position vis-a-vis your peers in the industry in terms of leverage, projects. I mean your situation is very positive, of course. And I think there is an issue with the buyback that ended in March. I don't know if you intend to do any additional buyback. And the environment may be favorable to some M&A or additional acreage between buyback and M&A, what do you think would be the most favorable scenario at the moment?

Well, thank you for your questions. In terms of ethanol prices, and you asked us whether we believe that whether we were surprised with the ethanol prices in the onset of the crop year. Well, in fact, we were surprised because prices were down significantly. And our -- it is not for that much. I mean it was down a lot in some regions with a flex fuel fleet of cars already normalized, we thought that the drop was quite significant. But that's how the market operates. But this is what I said when I talked about the ethanol slide. In the first 2 weeks of April, we sold it. And then we stopped a little bit. We were just waiting to see when things would be more accommodated because there -- you have to look at the chain and margins. Some people are making a lot of money, and there are distributors making a lot more money than others, but now things are becoming more stable. I mean the price is going through the pump in full, little by little. And I think things will be accommodated with time. Today, March 26, I mean, we are just 2 months ahead in our crop year, I mean, in the fiscal year. I think that very soon, the margins will resume to more comfortable levels. Now sugar hedging. This number considering what are produced last year, it's about 60% of own cane approximately, give or take. And if I do the same thing I did last year, I would say that this is an okay number considering the current risk level. But for some reason, I decided to produce more, maybe next quarter, I would have -- I would have produced about 160 tons of sugar, but it will certainly depend on the mix. We are closely monitoring that right now and I cannot give you any further information because this is critical information. Now in terms of capital allocation strategy. In fact, in March, the buyback program was over. We concluded almost 100% of all of the buyback. We are not going to open any other buyback program because we realized that there is initial liquidity in the market. And it's a matter of what comes first, the ag or the chicken. I mean, you buy back the shares and there is the issue of liquidity. I mean, given the fact that this will be a year where ethanol and sugar prices will not be within a good cycle or an optimum range. And we find ourselves in an investment cycle in our corn ethanol plant. So we will not open another buyback program. We will have to wait and see how ethanol prices will settle after the entire year of 2026. And then we will decide whether we will open another buyback program or not. Now in terms of acquiring another sugar or ethanol asset, don't even think about it. I mean we will operate with our current sugar and ethanol assets. We will try to get the best out of them, and we will only allocate capital in our Goiás corn ethanol asset without the need to originate chips.

Our next question is from Matheus Enfeldt with UBS.

Good afternoon, Felipe, and thank you for your time. Felipe, you already gave us a lot of details about your CapEx. But I would like more light about that BRL 2 million of maintenance CapEx. If you can help us quantify how much of that comes from Santa Elisa and how much that comes from the normalized crop and whether the base for '27-'28 crop year and going forward, could also be that BRL 2 million recurring. Still talking about CapEx, in terms of diesel and inputs, how much of your CapEx may be subject to a risk due to cost of fertilizers or any other impact? How much of that is part of the total CapEx? And the second question is about cost improvement for '26-'27. In the last call, you mentioned a unit cost of about 10% to 15% because of the cost dilution in the crop year. So how do you see that number going forward? And I'll repeat part of my previous question and how much risk you see when it comes to risks coming from diesel prices and fertilizer prices.

Your second question was cut off. I think I understood. But if I do not answer it completely, you can please repeat it. I mean that BRL 2 billion CapEx contemplates 100% of the Santa Elisa acreage that we acquired. 8,000 hectares, give or take, that we are now including in our sugarcane field. So this 800,000 I'll try to plant and harvest. So this BRL 2 billion is now the new normal. It will be BRL 2 billion from now on. This is the new acreage base because I have more cane to treat and more cane to harvest and as a consequence, more came to crush. So this is the new normal. So this is the first question. The second question -- why don't you talk about the break in that maintenance CapEx, I would say that diesel in this CapEx is not a lot because the diesel from the planting I can give you the exact number later. But when it comes to diesel, the bulk of the cost is doing harvest and not planting. Diesel there is mostly during planting and the irrigation areas, but it's not very relevant, maybe BRL 30 million, BRL 50 million nothing more than that, but I can confirm that number later. But as for fertilizers, this number is approximately BRL 250 million to BRL 350 million. And given that number for fertilizers, 60% of this volume is already priced between fertilizers already purchased and fertilizers already hedged, and I have 40%, which is market price. And this already includes the new fertilizer prices of urea and given all of the effect from the war. So for next crop year, assuming that there will be no more war and prices go back to normal, that cost should be lower. But going -- I mean being higher than what it is, I doubt that because we've heard that maybe the war is about to come to an end in the next coming weeks. So this is our cost breakdown. The third point that you asked. I mean cost improvement for next crop year, when -- if you were to take all this maintenance CapEx, operating efficiency improvement, plus my OpEx cost which is harvest, labor sales expenses, admin expenses. If I get all my OpEx and CapEx, and then if I look at my production guidance, this should lead to a production unit cost that should be down by in the range of 7% to 10%. In the past, we estimated that this number should go up to 15% optimistic perspective, but that was before the war. But after the war, since all input prices were higher, that number got a bit worse. If I turn all of these numbers into a unit cost, I would then tell you that my sugar cost would be around 1,750 and my ethanol sugarcane costs would be around 2,500 barrels per cubic meter. So this is the ballpark figure where we stand today.

Next question from Julia Zaniolo with Bank of America.

Good afternoon. I would like to learn what is your future scenario for the global sugar market given the fact that we will see El Niño being more defined by the end of the year. And how do you think the El Niño could affect your guidance? I mean depending on how climate will perform from June onwards.

Julia, this is a very difficult question. I don't know. That's the question of a few billion dollars. Okay. But how do we see El Niño? I mean, our view is that we are trying to accelerate crushing in our plants. We are I mean our daily crushing is higher than usual. So today, I have approximately 25% of my harvest already crushed. So with that, I tried to shorten my crop. So if El Niño comes very strongly with constant rainfall, I mean, I will not have any standing can. There will be a year where I have a lot of cane. I mean, yield is good, but I cannot leave the plant standing. And this is a challenge for the entire industry. Everybody may think that there will be excess supply, a lot of ethanol. But if you don't have an industrial plan operating at full speed. And if you leave the plant standing and if you can crush you might be in trouble. So from the very beginning, we're trying to anticipate crushing so that we can deliver up to the guidance. So I think we will end crushing -- in the second and third week of November, meaning that we still have some room in case El Niño lingers for longer. So I mean, we can still go into December. But depending on the strength of the El Niño, the crop year may be a bit more complicated, especially when it comes to TRS because there's a lot of TRS dilution, which impacts sugar production. But if there is a lot of rainfall, in the Southeast, intense drought in India in the Northern Hemisphere, and this should also impacts their sugarcane fields. In this case, India's production should go to 27,000 tons, and there should be also a significant impact in Thailand, and I mentioned that when I talked about sugarcane. Definitely, sugar prices today, those that are in the screen that do not reflect El Niño by no means. It just seems like it will be a perfect crop year in Brazil with no downtime, Brazil producing a lot of sugar and no expectation of a shortfall. But there is something for us to think about. This year, considering low sugar prices and low ethanol prices but high input prices, growers with high production costs, they may not even be able to afford to buy fertilizers. Many of them cannot even harvest their sugarcane. The impact of this combination of prices that are below cost, which is the case of ethanol today. And in some cases, this is also -- this also applies to sugar prices. Maybe next year, for sure, we will see a drop in sugarcane production in the Center South. This is almost like a given. So the antidote for low prices is low prices. So this year, we have prices, below price -- I mean, price is very low and high input prices. So should we have a bad crop year? Maybe. But next year, I mean, it's almost a given that production will be much lower than what people are anticipating if you look at the future outlook.

Next question from Gabriel Barra with Citi.

Hello, Felipe and IR team. I have two points here. and I would like to revisit the issue of capital allocation. You just said and we do agree that the sugar scenario seems to be much tighter than what the market is pricing today. But if we look back at 2018, I mean -- but we saw the results of that situation 3 years later because the foreign exchange situation was different as well. When we combine that with capital allocation from the previous question, when you were asked about investment, et cetera. It seems like you were more conservative. I mean even though you recently acquired Santa Elisa, but I would like to hear from you. What is your strategy for capital allocation when we see that many players are barely making ends meet? And there are just a few players that are operating on the positive side. So how do you think you could benefit from this scenario where, after all, I mean, you are performing much better when compared to your other peers in the industry. And as you mentioned, Santa Elisa and you also mentioned that there should be an increase in sugarcane availability. And we look at the company today, I think you will be very close to the nominal crushing capacity that you have today. So I would like to hear your views about that. Maybe this will be a concern for next year rather than this year. But in my view, you will be capable of achieving the nominal capacity of the company. Is there any other way to increase crushing capacity or maybe to change your ethanol or corn and ethanol sugarcane base. Or maybe if you increase the yield even more in all your assets of the company.

Well, thank you, Gabriel, for your questions. I will start answering your second question. Next year, with the ramp-up of Santa Elisa's cane, we will reach about 24.5 million and 25 million tons of cane. And this is pretty much my full industrial capacity. But if you focus in the [ HibernPretos ] cluster that contemplates São Martinho and Santa Cruz, it will be something close to 16.5 tons, and this is where Santa Elisa's asset is mostly concentrated. We do not intend to increase the industrial capacity. Any investment in industrial capacity. It's not feasible because I would have to invest more in the boilers, et cetera. So it doesn't make any sense. Therefore, the alternative path would be for us I mean, since in that cluster, we have especially at São Martinho, we have about 40% of cane from third-parties suppliers. Our rationale is that the cane that has the most expensive unit economics that brings a lower margin, we will then reduce that exposure. Instead of increasing and increasing, looking for future's cane and more expensive cane like it was a situation in previous years. But the rationale is to use a cane in the best oil more productive, closer to the mill, where even in moments when the situation is at low prices, which is now when sugarcane is cheaper, I can survive. So the idea is not to increase sugarcane crushing in the region, but rather decrease the sugarcane spot that are cheaper or they are produced in a region too far away from the plant. Given current prices of sugar and ethanol. Now your first question about capital allocation. Assuming that sugar prices shouldn't go up as much because it doesn't make any sense. I mean, that is true. We do have that feeling. Sometimes we look at the projects, and we maybe think that we might be losing an opportunity. But the cost of capital in Brazil is hard. And M&A I mean, the cost is [ 1KA ]. And in a commodity business, in addition to sugar, you make ethanol and sugar ethanol has been challenged by corn ethanol because as you know, corn ethanol is more efficient than sugarcane ethanol. And there is the issue of who is in the government, government A or B, sometimes they try to hold prices down, and therefore, it becomes more difficult for us to allocate capital. We think that we already have enough allocated capital in sugarcane. And when I conclude the corn ethanol project, we will have 30 million ton of equivalent cane, of which BRL 20 million or BRL 15 million is sugarcane. I think that's enough and the cost of capital is too high. So we would rather lose an opportunity than losing the pace of things...

Next question is from Henrique Brustolin with Bradesco BBI.

I also have two questions. My first question is on the cushion guidance for crop year '26-'27, this 8% growth. How much of that is TCH contribution? What is area? And what is third-party sugarcane when you break down that year-over-year, 8% growth? And the second question is about ethanol exports. With everything that is happening in the world with fuel prices, if you somehow see a better window to export that could probably help you deal with that excess offering in domestic market.

Thank you for your questions. I'll start with your second question while I look for the figures to answer your first question. We are seeing some export windows, especially for ethanol for other means. But the issue here that we also look at is working capital. Since we have a large volume of ICMS and PIS and COFINS to monetize. And this is not based on the civic rate and export does not have these taxes. So when it comes to exports, we also have to consider the time of time that when we will not get any monetization from the asset. So we are exporting some ethanol for other users, but there are some other mills that have a different tax regime and they are selling. And so at the end, they supply to the market, and we believe that by the end of the crop year, there will be a reduction in the ethanol offer due to exports. But that window is far from being the same as what we saw when the war started in 2022 between Russia and Ukraine. So we are not seeing the same window today. In terms of the shortfall, I would say, or the breakdown, I'd say that the bulk of this growth is the fact that we have 60% of our own cane. I mean, Henrique, 40,000 tons refer to Santa Elisa's sugarcane. Apart from that amount from Santa Elisa, you look at growth from suppliers. I mean, 23% that remains is TCH of own acreage.

Next question comes from Thiago Duarte with BTG.

Hello, Felipe. Good afternoon, everyone. I think you already mentioned that in your initial comments that you no longer give production guidance for ethanol -- sugarcane ethanol. But from your comments, I had the impression and considering what we know today that what we will see throughout this crop year, '26-'27 is that the bulk of your TRS will be sold at the end of the crop year. You said you haven't been selling since early April, and you're not monetizing a lot on your producer ethanol, you trying to sell your own sugar, you will sell it mostly at the end of the crop year. So the screen is reversed. I just want your help to see how you will sell your TRS. The second question, when you look at Phase 2 CapEx at the corn ethanol plant, you already made clear the issue about activation of cash, et cetera. But originally, you would have in your material fact, you said that 10% of that plant's CapEx would be executed or spent in 2027. But when we look at what you spent last crop year, and this year, there might be not much left. It's not that the guidance of the plant will be higher than what was originally released, but there will be just a timing difference between that and the disbursement of cash.

Thiago, thank you for your question. I'll start with your second question. You're right. It is true. We do not see any increase in CapEx. It's just an issue of schedule, schedule between payment of suppliers. So we conclude the activation. In this crop year, if there is anything left, it will be a minimum amount for next crop year. But by the end of this crop year, instead of investing BRL 800 million, I would invest BRL 750 million and BRL 50 million would be left to the next crop year to the following crop year. And your first question about how we see the crop year evolving. I mean, it is true, we should be carrying more ethanol and sugar to be sold at the end of the crop year, this hedged sugar volume, I mean, the cost of that sugar has to do with the volume of the first screens. May, July and October. So this volume of 600,000 will be realized in -- along the first quarters, but the remaining will be -- or the bulk of it will be in the fourth quarter, ethanol was sold a lot at the beginning in the first -- fourth night of April. So everything I produced and everything I had in stock, I sold at good price. It was about BRL 3,000 at the time. But after the price was down, we stopped. We are just waiting to see a more normal market. First, we will check demand. And we are not going to go against the market. But if we notice that demand is going up, the auto cycle was up by 5%. Demand is picking up. We see that whatever is there will be absorbed by the market, then we will sell further on. We have enough cash and the cost is reasonable. And so we can hold it and sell it later. So the first -- in the first quarter, we will sell, okay, with good margin. I mean the second quarter will be a bit worse. But third and fourth quarters will be better. but we will try to sell products with better margins. Apart from that you have East and coal generation, these -- I mean, cogeneration and East are sold in the first quarter, this is about BRL 3 million of EBIT approximately, give or take. And DDGS, we try to sell between the first and the third quarter. I mean in the last quarter, we sold a little bit of DDG. We sold more corn ethanol. So East, DDG, car generation are mostly concentrated in the first and third quarters and ethanol, third and fourth quarters, and sugar, 600,000 in the first two quarters and the remaining more allocated towards the third and fourth quarters.

Next question from Julia Rizzo with Morgan Stanley.

I would just like to get your view about ethanol. Detaching it a bit from corn and sugarcane since you had significant results with corn ethanol of close to BRL 400 million, good prices. I would just like to understand a bit more about tanking, whether you would also apply the same strategy for corn ethanol so that you will be able to hold it during low pricing periods. And I want to learn a bit more about your results or how much you would be able to discount with the sales of DDG, I mean and other products in general, what margins you anticipate in this operation, especially coming from corn ethanol because, as you know, production is below expected levels.

Okay, Julia, about our tanking capacity UBV for ethanol is common for corn-based ethanol. When I invested in corn ethanol, I did not invest in tanking. I'm using the same tank I used for sugarcane ethanol. I think we had -- I mean, 65% of the tanking capacity that I had for sugarcane, I use the same tanks for corn-based ethanol. I would say that when I look at the results, from the Boa Vista plant for -- and I compare corn and sugarcane ethanol, it will be even unfair to compare realized prices for corn, ethanol and sugarcane ethanol because due to energy efficiency, I only produce anhydrous for corn ethanol and hydrous with sugarcane ethanol. But given the energy efficiency and the better technical and industrial balance, we did the opposite of what we usually do, which would be the reverse equation. So it seems like corn is much better than sugarcane. But let me make a side comment related to management. When we look at corn, I think that the result will be slightly worse than last year, mainly due to a reduction in production by 5% that has its impact, but it will certainly depend on prices. The realized price last year was good. So we will try to sell the same amount we saw last year. We can also -- I mean I could probably carry 60% of corn production to sell at the end. We have a lot of things that have been contracted, but the -- we anticipate to have about BRL 300 million to BRL 400 million, depending on corn ethanol prices. But it shouldn't go beyond that threshold because my core guidance this year is slightly worse. But next year, the plant will more than double in size. There will be better efficiency, et cetera, so things go to a different level.

Got it now. Now I have another question about your expectation or -- what is your view on the gasoline subsidies? I mean, BRL 0.44 was below expected, but nothing has been announced for ethanol. What is the industry's understanding in terms of what would be the constitutional gap in BRLs the way it is, do you think it works? What should we expect going forward?

Well, in practical terms, there is a constitutional issue. I mean it's in the constitution and in practical terms, that should be a difference. And if you only apply that to gasoline at first, it's not complying. It does not comply with what the constitution says. They just announced it today. So let's see how things will evolve because it's still very recent. Let's wait and see. I mean the industry is still discussing that. We understand this whole mess, I mean until October. But in fact, what has been approved by the constitution has to be has to be followed because if they only approve it for gasoline, it does not comply with what the constitution says. Do you think that they would do the same thing with ethanol, just to comply with the constitution? I think I think the differential is, what, 50%. I think there has to be a difference of 50%. So it should be at least half.

Thank you. Since there are no further questions, we now conclude the Q&A session. I would like to turn the floor back to Mr. Felipe Vicchiato for his final remarks.

Well, thank you so much for joining us today. I think this has been a very challenging year for the company and for the industry as a whole. 2026, especially, São Martinho, we experienced a very complex year in agricultural terms given the drought we went through. But at the end, I mean, the financial income -- I mean, operating results, our net income, we were able to keep our debt level at the same level we had when we started the year despite all of the investments in acquiring sugarcane fields and investments in the corn ethanol plant. We still have a very low debt level. Therefore, we are starting this new crop year much stronger in terms of equity. And we are certainly prepared for a cycle of prices that are even worse than that of last crop year. But when I was answering Julia's question, Julia from Merrill Lynch, I said that this is a year that if prices remain as they are and if costs are what they are now. We are not in rest assured, next year, most growers will have a lot less sugarcane than what we have, a large player that has 10% of the production. It's in a very complex position, and this has a direct effect on sugarcane. So nobody is talking about that. We don't know how much what prices will be for sugar and ethanol. So imagine if you look at other places that do not have the same financial breadth, so it will be a very complex year, a bad year and São Martinho invested in the right projects. In only 2 years, we had returns of BRL 400 million, and this project will more than double next year, going to BRL 1.1 million. Recently, in the core plant, the multiple was very good. If you put that in a corn ethanol plant for São Martinho. That alone is even -- is worth more than the market share on São Martinho. So for sugarcane, it will be a tough year, but we have the best people and today, the best sugarcane field. So we are ready to face hardships. So thank you all very much. We remain at your disposal. Thank you.

São Martinho's conference call is now concluded. Thank you very much for joining us, and have a very good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]